Genomics Law Report: Jon Jordan's "Starting Out with Government Funding: SBIR and STTR Grants"

You’ve spent months or even years researching and believe you are on the brink of a major breakthrough. Your quest to develop a marketable product or technology is at a crossroads and, like many entrepreneurs, you wonder where you can find the funds to make your dream a reality. Luckily, public funds are available from a variety of sources to help fund research and development and commercialization activities. Public grants are a valuable source of funding that can mean the difference between commercialization success and the death of an idea before it makes it off the bench.

There are currently 26 federal government agencies that offer grants in a variety of fields. In this post we will focus on the two major programs offered by the federal government for small businesses/entrepreneurs, particularly those entrepreneurs engaged in science and technology related research. These programs are the Small Business Innovation Research (“SBIR”) program and the Small Business Technology Transfer (“STTR”) program. Each of these programs is intended to stimulate technological innovation, strengthen the role of small businesses in meeting research and development (“R&D”) needs, and increase private sector commercialization of innovations derived from federal R&D.

The SBIR offers qualified small businesses the opportunity to propose ideas that meet specific research and R&D needs of the federal government. Federal agencies with more than $100 million in extramural R&D are required to allocate a percentage of their budgets exclusively for small business grants. The current set-aside is 2.5%, which resulted in approximately $2.5 billion of available grant money in fiscal year 2009. The eleven agencies that participate in the SBIR program are the Department of Agriculture, Department of Commerce, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Homeland Security, Department of Transportation, Environmental Protection Agency, NASA and the National Science Foundation.

The STTR provides the opportunity for small businesses to work collaboratively with nonprofit research institutions on research or R&D projects. Federal agencies with more than $1 billion of extramural R&D must reserve a portion of their budget for R&D small businesses and their partners. In fiscal year 2009, this resulted in the availability of $150 million for small businesses. The five agencies that participate in the STTR are the Department of Defense, Department of Energy, Department of Health and Human Services, NASA and the National Science Foundation.

Eligibility for the SBIR and STTR is limited to for-profit small businesses that are American-owned, independently operated and have 500 or fewer employees. In addition, STTR research institution partners must be located in the United States and be a university/college, domestic research organization, university-affiliated hospital or a federally Funded Research and Development Center. SBIR and STTR grant submissions are evaluated using the following criteria: scientific and technical quality and innovativeness of the idea; the significance of the scientific or technical challenge; the ability of the small business to carry out the project (i.e. qualifications of the principal investigator and other key personnel, adequacy of facilities and equipment, and soundness of work plan); and the impact of the project, judged by technical and/or economic benefits, the likelihood that the work would lead to a marketable product, or the likelihood the project could attract further funding.

SBIR and STTR grants are awarded in three phases, two of which are federally funded. Phase I funds a feasibility study to evaluate the proposed project’s technical merit. A Phase I SBIR grant winner may receive a maximum of $100,000 for use during a six-month testing period, and an STIR award winner may receive a maximum of $100,000 for approximately one year of study. Phase II funds two-year projects intended to finance the principal R&D effort to expand on Phase I’s results. A Phase II SBIR award winner may receive a maximum of $750,000, and a Phase II STTR award winner may receive up to $500,000. Only Phase I award winners are eligible to compete for Phase II funds. The SBIR and STTR programs also include a Phase III provision, which is intended to assist the grantee with commercializing the results of Phase II and moving an innovation from the laboratory or test facility to the marketplace. Although federal agencies support the commercialization effort, Phase III requires the use of private sector or other non-SBIT/STTR funding. Thus, although Phase III does not provide any direct governmental funding, participation in Phase III gives added credibility to a project seeking private funding. Also, in certain circumstances, some agencies offer follow-up “Phase IIB” or other matching funds to assist with commercialization of an innovation.

In addition to the federal programs, many states offer programs that work in conjunction with the federal programs. For example, the North Carolina SBIR/STTR Phase I Incentives Program (pdf) provides funds that can be used to pay for a portion of the costs incurred in preparing and submitting Phase I proposals for the SBIR and STTR programs. These awards can be up to the lesser of 50% of the approved proposal preparation costs or $3,000. The North Carolina Board of Science and Technology (the “Board”) administers the North Carolina incentives program, and applicants may apply for the awards in response to solicitations developed and issued by the Board. Applicants must conduct at least 51% of the activities described in the SBIR/STTR proposal within the state of North Carolina and must maintain significant operations in North Carolina during Phase I of the SBIR/STTR program if a federal award is received.

North Carolina also offers matching funds to small businesses that have received an SBIR or STTR Phase I award. Awards under the North Carolina SBIR/STTR Phase I Matching Funds Program may equal up to 100% of an applicant’s SBIR/STTR award, capped at $100,000. Grant recipients receive 75% of the award upon receipt of an SBIR/STTR Phase I award and the remaining 25% if the Phase I report is accepted by the funding agency and the applicant submits the related Phase II application. The Board also administers the matching funds program and applications are submitted to the Board in response to solicitations issued by the Board.

Last modified: Monday, January 22, 2018, 7:01 PM